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The European CLO market had a week of energetic trading with Bids Wanted in Competition deals becoming a key factor. "The BWICs have been steady, and there was one on Wednesday from a continental bad bank with a lot of double-A rated second-pay paper," one trader said. "The bonds on that list traded quite well, and there were some interesting names on it, such as Alpstar and Harvest."

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Arrangers of collateralised loan obligations are dealing with a shortage of new debt in Europe by repackaging parts of the same loans. A variety of CLOs would be affected, therefore, if one loan defaults or is downgraded. "If a single borrower's loans are held by a large portion of CLOs and it gets downgraded, that could have a significant negative impact on valuations for the whole market," said Tracy Chen, a money manager at Brandywine Global Investment Management. "The high concentration is definitely negative for investors."

Regulators agreed to give banks two more years to restructure or divest collateralized loan obligations as mandated by the Volcker rule. However, some in the industry say the extension fails to address some banks' concerns regarding CLOs. Also, the industry had requested exemptions to the CLO rule, which regulators didn't address. Read SIFMA's statement on the treatment of CLOs under the Volcker rule.

Regulators are striving to require firms that arrange or manage collateralized loan obligations to keep some of the risk of the loans on their books. Investors, corporations and asset managers say the new rules will hinder the market for company loans. "The public hasn't largely heard of CLOs, but they're an important part of the economy overall and the single-largest lender to corporations beside banks," said Josh Terry of Highland Capital Management.

Collateralized loan obligations managers now believe that spreads on their deals are wide enough, compared with commercial MBS spreads, that insurers will soon return to CLOs. Many major insurers had shifted to commercial MBS after the bond market rout in June, hoping to lock in high yields.

On Wednesday, private equity firm Carlyle Group priced European collateralised loan obligations at €1.5 billion, one of the biggest managed CLOs in the region. The development indicates that some sectors of the credit market are slowly being revived. The market for CLOs was hit especially hard by the credit squeeze.